exemption

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Taxpayers frequently challenge tax laws based on equal protection grounds, but states generally prevail on the rather easily met rational basis test. In a noteworthy Iowa decision, Qwest, an incumbent local exchange telecommunications company (ILEC), successfully argued that the application of two property tax exemptions resulted in unconstitutional discrimination against it in favor of competitive long distance companies (CLDCs) and wireless companies. Qwest Corp. v. Iowa State Bd. of Taxation and Revenue, Docket No. CV008413 (Iowa Dist. Ct. Aug. 17, 2011).

The first subject of Qwest’s challenge was an exemption for personal property acquired by CLDCs after 1995 that was available to “long distance telephone companies,” the definition of which specifically excluded ILECs like Qwest. The second aspect of Qwest’s challenge involved the state’s central assessment property tax scheme. Iowa law exempts all personal property from tax, but for centrally assessed telephone companies like Qwest, the state treats all property as “real property.” All “telephone companies” operating a telecommunications line in the state are subject to central assessment. The state did not classify wireless companies as telephone companies, because the wireless companies use radio wave technology and not a network of cable and wires. Therefore, Qwest paid tax on the value of all of its property, while wireless companies did not pay tax on personal property.Continue Reading Iowa Court Upholds Equal Protection Challenge

The U.S. Supreme Court reversed a U.S. Court of Appeals in holding that a railroad may bring suit to challenge the validity of a discriminatory Alabama sales tax exemption. CSX Transp., Inc. v. Ala. Dep’t of Revenue, No. 09-520, 2011 WL 588790 (U.S. Feb. 22, 2011). Alabama imposes its sales and use tax on the use of diesel fuel for off-road use, including fuel used by railroads, but provides exemptions for fuel used by railroads’ direct competitors, commercial truckers and interstate water carriers. CSX sued to challenge the discriminatory scheme under the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act).Continue Reading Discrimination Train Has Left the Station: U.S. Supreme Court Remands Alabama Railroad Case

Proposing to significantly overhaul Georgia’s tax code, including an interesting attempt to eliminate sales tax exemptions for “Holy Bibles” and Girl Scout Cookies, H.B. 385 was introduced on February 24. The 127-page bill is intended to be revenue neutral and largely mirrors the recommendations of the Special Council on Tax Reform and Fairness for Georgians (the Council) (see Sutherland Legal Alert, January 10, 2011 for detailed coverage of the Council’s report). H.B. 385 would eliminate most sales tax exemptions and subject certain services to tax, reduce or eliminate most income tax credits and personal deductions, phase in lower personal and corporate income tax rates, and implement a communications services tax. The bill, introduced by the Special Joint Committee on Georgia Revenue Structure (the Committee), is expected to be amended while still in Committee, but will then require an up or down vote when introduced to both houses of the Legislature.Continue Reading Get Out Your Dustpan: Georgia Bill Proposes Sweeping Tax Reform

In an interesting development in the ongoing debate surrounding intended tax benefits, the Massachusetts Supreme Judicial Court affirmed the Appellate Tax Board’s ruling that a taxpayer qualified for a use tax exemption and that the Commissioner was not entitled to impose additional requirements on a taxpayer’s eligibility for the exemption. Onex Commc’ns. Corp.  v. Comm’r…